HCC Economics Discussion

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DB #2…Intro to Econ Video Watch the following video, then answer the questions below in your DB#2 post.Intro to Economics: Crash Course Econ #1 (Links to an external site.)1. In the Unit 1 video lecture I talked about Opportunity Costs, particularly with the Guns and Roses Production Possibilities Curve. And in the video, they mention this as well. What is another example in today’s economy that is a clear example of an opportunity cost?2. In the video, they do a great job of explaining incentives…and how they sometimes backfire, bringing about unintended consequences. Give an example of a gov’t incentive that has not worked out.

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UNIT 1
FUNDAMENTAL
ECONOMIC CONCEPTS
JEFFREY Cleveland
ECON-101 (Macro)
ECON-102 (Micro)
Howard Community College
ECONOMICS: THE DISMAL SCIENCE?
“…a dreary, desolate
and, indeed, quite abject
and distressing subject;
what we might call, by
way of eminence,
the dismal science.”
Thomas Carlyle
Great clip from Ferris Bueller’s Day Off:

2
Scottish historian
1795 – 1881
ECON-101/102
Q: WHAT IS ECONOMICS?
“I know it’s not accounting.”
“I’m pretty sure it’s not the stock market.”
“I have no idea…and it scares me.”
3
ECON-101/102
ECONOMICS: THE STUDY OF SCARCITY
• Analysis
• Decision making
• Behavior
• Outcomes
Micro4
MacroECON-101/102
MICRO VS. MACRO: HOW ARE THEY DIFFERENT?
MICRO economics topics:
MACRO economics topics:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
5
Price elasticity (sensitivity) of
demand for goods and services
Firms’ production behavior
Cost functions
Profit maximization
Market structures
Anti-competition policy
Income inequality
Protectionism
Micro-
Unemployment rate
Inflation
Interest rates
Government budgets
Government fiscal policies
Economic growth
Tax policies
Economic indicators
Monetary policy
Foreign trade
Macro-
ECON-101/102
COMMON TO BOTH MICRO AND MACRO
•
•
•
•
•
6
Production possibility curves
Opportunity costs
Demand and Supply
Equilibrium
Demand and Supply determinants
Micro-
Macro-
ECON-101/102
IMPORTANT WORD IN ECONOMICS: MARGINAL
• “situated on the border or edge”
For our purposes in economics:
• “the next one”
Example: You own a pizza restaurant…
• The NEXT pizza costs you $5 to make, and you can sell it for $8.
Do you make/sell that pizza?
• The NEXT pizza costs you $7 to make, and you can sell it for $8.
Do you make/sell that pizza?
• The NEXT pizza costs you $9 to make, and you can sell it for $8.
Do you make/sell that pizza?
7
ECON-101/102
“MARGINAL” IN ECONOMIC DECISION MAKING
Making a decision based on understanding the:
Marginal benefit of undertaking an activity
versus
Marginal cost to undertake an activity
8
ECON-101/102
PRODUCTION POSSIBILITIES CURVE (PPC)
“A curve that illustrates the variations in the amounts that can
be produced of two products if both depend upon the same
finite resource for their manufacture.” (Investopedia)
“A graphical representation showing all the possible options of
output for two products that can be produced using all factors
of production, where the given resources are fully and
efficiently utilized.” (Wikipedia)
9
ECON-101/102
PPC EXAMPLE
Key Concept:
Any point on this graph gives
us TWO pieces of information
(# of Guns, # of Roses)
All Guns,
no Roses
GUNS
100
80
A
80 Guns,
20 Roses
C
F
50 Guns,
50 Roses
60
D
E
40
All Roses,
no Guns
20
B
20
10
40
60
80
100
ROSES
ECON-101/102
PPC AND OPPORTUNITY COST
GUNS
100
80
Give up 10
Guns, gain
40 Roses
60
40
A
20
20
11
40
60
80
100
ROSES
ECON-101/102
PPC AND OPPORTUNITY COST
GUNS
100
80
Give up 50
Guns, gain
15 Roses
60
A
40
20
20
12
40
60
80
100
ROSES
ECON-101/102
PPC AND OPPORTUNITY COST
GUNS
100
Give up a few
Guns, gain a
lot of Roses
80
A
60
Give up a lot
of Guns, gain
a few Roses
40
B
20
20
13
40
60
80
100
ROSES
ECON-101/102
HOW CAN AN ECONOMY GROW?
GUNS
1. Increases in resources
2. Advancements in technology
3. Combination of both
100
80
60
40
20
20
14
40
60
80
100
ROSES
ECON-101/102
THREE PRIMARY ECONOMIC SYSTEMS
Total government
control of resource
allocation
15
Total individual
economic freedom
Economic model
Command
Mixed
Laissez-faire (“left
alone”)
Also known as
Planned
Socialist
Free market; Capitalism
Typical govt regime
Communism
Socialism
Democracy
Govt role in
resource allocation
Total
Varies
Minimal
Property rights
Minimal; state owns
all means of
production
Varies
Maximum; individuals/
corporations own means
of production
Individual rights
Minimum freedom
Varies
Maximum freedom
ECON-101/102
CHARACTERISTICS: FREE MARKET
• Role of the government is limited to the most essential
functions
• All prices are determined in the free market (supply and
demand)
• Private ownership of factors of production
• Decentralized decision making coordinated by market
mechanism
• Material incentives
16
ECON-101/102
CHARACTERISTICS: MIXED MARKET
• Most economic decisions are made by the private sector,
but the role of the government is significant. Government
spending and taxes are relatively high
• Public ownership of some factors of production, private
ownership of others
• Decentralized decision making coordinated by market
mechanism
• Material + moral incentives
17
ECON-101/102
CHARACTERISTICS: COMMAND ECONOMY
• Government makes all decisions regarding production,
prices, wages, interest rates, and income distribution
• Public ownership of factors of production
• Centralized decisions making coordinated by central plan
• Material + moral + fear incentives
18
ECON-101/102
CAN GRADING SYSTEMS BE LIKE AN ECONOMY?
• Capitalism: Every student gets the grade (s)he earns
? If everyone deserves an A, everyone gets an A!
? Could this be the result of grade inflation? For this class, highly unlikely; most of
your grades are calculated the instant you hit SUBMIT on your assignments. I’m only
grading your Discussion Board posts and other writing assignments.
• Socialism: some points are taken from higher-scoring students and
given to lower-scoring students
? Will higher-scoring students continue to work hard? Will lower-scoring students
work harder to improve their grade?
? Over time, what do you think will happen to the overall class grade average?
• Command: All scores are added up, then divided by the number of
students in the class; everyone receives the exact same grade.
? But first, as the leader, I will take half the total points before distributing the rest to
all of you…just because I deserve it.
? Everyone is equal (except me, of course!)…but are you equally rich, or equally poor?
Which grading system do you prefer?
19
ECON-101/102
OPPOSITE ENDS OF THE ECONOMIC SPECTRUM
Karl Marx
– “To each according to his need, from
each according to his ability.”
Who makes the decision as to what YOU need?
(Hint: It’s not you.)
“Capitalism is merely a
voluntary exchange
between two parties,
where both parties benefit
from that exchange.”
Milton Friedman
– “To each according to whatever he
and the instruments he owns
produces.”
What is the impact on income and wealth
inequality? (Wait until Unit 9!)
20
ECON-101/102
WHAT DO ECONOMIC SYSTEMS INFLUENCE?
• Standard of living is the material well being of the average
person in a given population. It is typically measured using
GDP per capita.
GDP (Gross Domestic Product; the total amount of all final goods and
services produce in a specific geography over a specific time period)
Population
= GDP per capita
• Countries with the highest overall economic standard of
living have the freest markets (more elements of
capitalism).
• Examples: Hong Kong, the United States, Japan, Taiwan,
Great Britain, Canada, Sweden, South Korea, and Singapore.
21
ECON-101/102
GDP AND GDP PER CAPITA FOR VARIOUS COUNTRIES
2018 Purchasing Power Parity: Gross Domestic Product
estimated in billions of dollars, and Per Capita (person) GDP
(Source: International Monetary Fund)
Country/Area
GDP
World
$135,178
$16,779
$20,494
$62,606
Canada
$1,837
$49,651
Mexico
$2,570
$20,602
Cuba
$133
$11,900
Dominican Republic
$189
$18,424
$20
$1,800
$25,270
$18,110
Hong Kong
$481
$64,216
North Korea
$40
$1,700
South Korea
$2,136
$41,351
Japan
$5,594
$44,227
Qatar
$355
$130,475
United States
Haiti
China
22
GDP per capita
ECON-101/102
KOREAN ECONOMIC ACTIVITY: NORTH VS. SOUTH
23
ECON-101/102
WHAT’S THE ROLE OF GOVERNMENT?
The role of most governments around the world includes:
• FISCAL POLICY: Raising revenue through taxation, and
spending money through appropriations:
? defense, roads, legal system, public services, education
• Redistributing incomes through taxes and subsidies
• Passing laws and imposing regulations
• Implementing price controls
• MONETARY POLICY: Setting interest rates and money
supply to affect inflation, interest rates, and employment
24
ECON-101/102
OTHER IMPORTANT ECONOMIC CONCEPTS
• Economic Circular Flow models
• Nominal and real values
• Positive and normative economic statements
• Concept of ceteris paribus
• Fallacy of Composition
• Fallacy of Cause and Effect
25
ECON-101/102
THE SIMPLE CIRCULAR ECONOMIC MODEL
Supply of Products
Products
(Outputs)
Market
Purchases of (Demand for) Products
Households
Businesses
Supply of Labor and Resources
Resource
(Inputs)
Market
Purchases of (Demand for) Labor and Resources
26
ECON-101/102
THE MORE COMPLEX CIRCULAR ECONOMIC MODEL
Foreign
Markets
Supply of Products
Products
(Outputs)
Market
Purchases of (Demand for) Products
Services
Services
Government
Households
Taxes
Businesses
Taxes
Supply of Labor and Resources
Resource
(Inputs)
Market
Purchases of (Demand for) Labor and Resources
27
ECON-101/102
NOMINAL AND REAL VALUES (PRICES, INCOME)
• Nominal prices are expressed in current dollars; that is, in
whatever specific year being discussed.
• Real prices are adjusted for inflation.
2008 Honda Accord
2008 price: $21,360
(but $25,755 in 2020 dollars)
28
2020 Honda Accord
2020 price: $23,570
ECON-101/102
POSITIVE AND NORMATIVE STATEMENTS
• A positive statement can be proven or disproven.
• A normative statement is an opinion or value judgment.
• Which is the normative and which is the positive economic
statement?
? Statement I: “If the minimum wage is increased to $15/hour,
everyone will benefit.”
? Statement II: “If the minimum wage increases, then firms’ labor
costs rise, IF labor inputs are held constant.”
29
ECON-101/102
CETERIS PARIBUS
• Latin for “other things being equal”
• In economics, it typically means, “…if no other things in
the economy change…” or, “…if everything else remains
the same…”
30
ECON-101/102
THE FALLACY OF COMPOSITION
• What is good for one person (or one group) is good for all
persons (or all groups).
• “What’s good for the goose is good for the gander.”
31
ECON-101/102
THE FALLACY OF CAUSE AND EFFECT
• Because A happens before B, A must be automatically the
cause of B.
• Correlation is a mutual relationship or connection between
two or more things.
• Causation is the action of causing something; the
relationship between cause and effect.
When you get sad it
always seems to rain.
Lots of people get
sad when it rains!
It rains because
you’re sad, baby.
Men in Black II
CORRELATION
32
CORRELATION
CAUSATION
ECON-101/102
CRITICAL THINKING GUIDELINES
• Question the source.
• Question the assumptions.
• Question how the variables are defined.
• Question the validity of the statement.
• Question the statistics.
Think like an economist.
33
ECON-101/102
UNIT 1
FUNDAMENTAL
ECONOMIC CONCEPTS
JEFFREY Cleveland
ECON-101 (Macro)
ECON-102 (Micro)
Howard Community College

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